Updates from the Canadian Farm Enterprise Network, Canadian Farmers
for Justice and the Prairie Centre. Several of the items appearing here
originally appeared in an email list operated by Dwayne Leslie athttp://www.prairielinks.com.

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posted March 20, 2000

Grain marketing around the world

By Craig Docksteader

Over the past couple of weeks, I have spent considerable time reviewing
information on the rain marketing and import systems in various countries
around the world. Some of the reports are from the U.S. Department of
Agricultures Foreign Agricultural Service, and some are from World
Grain Publication, a magazine which takes an international look at grain,
flour and feed. Still other sources include the Canadian Wheat Board,
Agriculture and Agri-Food Canada, the McKinsey Report which examined western
Canadas grain handling and transportation system, and a report done
for the Western Grain Marketing Panel on "Changing Marketing Systems".

Although the reports cover a wide range of information and touch on many
issues, one dominant theme surfaces repeatedly: Over the last ten years
the agricultural industry around the world has been undergoing significant
-- and at times radical -- changes to make it more productive, efficient,
and competitive. Whether because of discontent with mediocre productivity
or because they were forced to make changes as a result of political realignments
or economic realities, country after country has been taking steps to
improve their position in the agricultural marketplace.

Almost without exception, the steps to improve the agricultural industry
have involved moving toward a deregulated, market-oriented agricultural
system. In some cases, outright privatization of grain import or export
systems has been embraced. Following are some examples of this trend that
is taking place around the globe:

Argentina: Deregulation and privatization of the grain industry began
in 1989. In the early 90s the Argentine National Grain Boards
monopoly on grain exports was terminated, and exporting turned over completely
into private hands.

Australia: Australia has privatized their Wheat Board and implemented
a dual domestic market, where the Wheat Board competes for farmers
business with the private grain trade. The Australian Barley Board has
also been privatized and has no export monopoly.

Brazil, Columbia and Mexico: All three countries privatized their grain
import systems in the early 90s.

Egypt: Egypt privatized its grain import functions in 1992.

Indonesia: In Indonesia, wheat imports are no longer controlled by the
state agency BULOG, but have been turned over to the private sector.

Japan: Grain policies in Japan have been gradually moving toward more
market orientation for some time, and recently announced that it will
be allowing millers to import some wheat directly from exporters, rather
than going through the government-controlled Japanese Food Agency.

Morocco: During the past decade, the Moroccan government privatized nearly
half of its 114 state companies and, in 1996, adopted laws allowing the
private sector to import wheat, barley and other grains directly.

South Korea: In South Korea, the government has been moving gradually
towards greater market liberalization. Grain import functions have been
privatized.

The list could go on: Jamaica, Bolivia, Ecuador, Peru, Israel, Poland,
Hungary, Romania, Spain, Bangladesh, Portugal, Ghana, Turkey, Zimbabwe,
Kenya, Bulgaria, Philippines, Pakistan, Sri Lanka, Taiwan, Ukraine, Venezuela,
and even Russia are downsizing their government involvement in agriculture
and moving towards a more market-oriented system. The trend is clear and
the results compelling: The agricultural industry becomes more efficient,
more productive, and more competitive the further it is removed from government
monopolies and over-regulation.

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posted March 13, 2000

Grain marketing in Nova Scotia

By Craig Docksteader

Ninety-five percent of all wheat produced in Canada is grown in the western
provinces and marketed under the jurisdiction of the Canadian Wheat Board.
Another four percent is grown in Ontario and marketed under the jurisdiction
of the Ontario Wheat Producers Marketing Board. The final one percent
is split up between the remaining provinces and falls under a variety
of marketing schemes.

The smallest of these wheat producing provinces is Nova Scotia. From
1988 to 1997, total wheat production in Nova Scotia, consisting of both
winter and spring wheat, averaged only 7.2 thousand tonnes per year. In
comparison, during the same period, Manitoba's wheat production averaged
4,152 thousand tonnes per year, Alberta 6,789 thousand tonnes, and Saskatchewan
14,145 thousand tonnes. No matter which way you slice it, Nova Scotia
is an extremely small player in the marketplace.

With only a fraction of market share, some prairie producers would view
Nova Scotia producers as extremely vulnerable in the marketplace. Popular
mythology would say that without the strength of numbers, they have no
market power and risk being trampled by large corporate interests. They
should band together, establish a position of solidarity, and perhaps
even unite with other Canadian grain growers to present a single, powerful
marketing force.

Actually, such an arrangement wouldn't be all that difficult to pull
off. It's simply a matter of extending the Canadian Wheat Board's "designated
area" to include Nova Scotia. Section 40 of the CWB Act already makes
provision for such a move, by allowing the government to apply the Act
to wheat produced outside the existing designated area. The change could
be made by regulation, and doesn't even require debate or voting in the
House of Commons. Producers in Nova Scotia would then have single-desk
selling, compulsory pooling, and government guarantees on initial payments.

There's only one problem, though. Nova Scotia wheat producers don't see
it this way. In fact, Nova Scotia has been moving the opposite direction,
away from centralization and greater government control, toward privatization
and more producer control.

In 1997, Nova Scotia's provincial government privatized the operations
of the Nova Scotia Grain Marketing Board. Now called East Coast Commodities
Inc., the corporation operates as a voluntary grain marketing agency offering
services such as cleaning, weighing, drying, storage, forward pricing,
spot pricing, risk management, marketing, and -- for those who prefer
it -- price pooling.

For almost three years, ECCI has had to earn the business of Nova Scotia
wheat producers by competing head to head with other grain buyers. Producers
are free to pick the marketing agent of their choice or sell their grain
themselves on the open market. Those who prefer the cooperative pooling
approach to marketing have access to this option, while those who prefer
to go it on their own can do so as well. It's an arrangement that is commonly
referred to as dual marketing.

For some prairie farmers, this approach flies in the face of everything
they've been told about grain marketing: It should weaken, not strengthen
producers' market position; it should result in lower prices, less options
and poorer service, as farmers supposedly compete against each other to
sell their product.

In actual fact, if dual marketing doesn't work, it should have failed
first in Nova Scotia. Not only is it the smallest wheat producing province
in Canada, but local grain buyers can easily source grain from New Brunswick,
Maine, Ontario, Quebec, the U.S. and even Western Canada. Nova Scotia
farmers should be banging on the doors of the CWB asking to be let in.

But they're not. They're going the other direction. Maybe that tells
us something about dual marketing.

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posted March 6, 2000

Fixed price contracts

By Craig Docksteader

The Canadian Wheat Board recently announced that it will be introducing
payment options for prairie farmers for the 2000-01 crop year. The new
program, called the Fixed Price Contract, lets farmers fix a price or
a basis for their wheat before the crop year begins. This means that instead
of waiting 18 months to see what the CWB pool returns will be, farmers
can lock in a price when the crop is still in the ground. Or, if they
prefer, they can lock in the basis and later commit to a futures price
prior to delivery.

At first blush, it sounds like a good idea. The CWB appears to be modernizing
and responding to the needs of prairie farmers. More payment options means
more flexibility. According to the CWB, this will allow producers to better
manage risk and cash flow on their farm.

Furthermore, for those who are quite content with the current pooling
system and payment method, there is no need to fear. The new plan does
not replace the existing process, and "will not have any impact on
CWB pool accounts". According to the Board's press release, the three
pillars of the CWB -- including price pooling -- remain intact.

For producers who want substantive change, however, the plan falls short.
While it may have significant optical value, it will have little practical
value. The price that farmers receive for their product under this plan
will have nothing to do with what the market is doing at the moment, and
everything to do with what the CWB thinks their final pooled price will
be. While a similar plan under the Ontario Wheat Board sets the cash price
according to the Chicago Board of Trade price, the CWB is going to arbitrarily
"fix" theirs to the mid-range of their Pool Return Outlook.

This means the program will not likely allow a farmer to realize any
better return than what could be achieved under the existing pooling system.
It virtually guarantees a lower price in exchange for the benefit of knowing
what the price will be and getting paid sooner. This might be what the
CWB calls risk management, but it's not what producers had in mind.

In fact, at no time over the last few years has there been any significant
demand for more payment options from the CWB. Most of the wide-spread
dissatisfaction with existing CWB policy has been focused on the need
for marketing options, not payment options. If producers have choice in
who markets their product, they'll have more payment options than 100
bureaucrats can dream up at an all-night board meeting. If the CWB was
made voluntary, prairie farmers would immediately have access to the best
risk management tools in the world, without having to implement cumbersome
and costly programs at farmers' expense.

It would appear that the CWB is trying to implement a system which emulates
both a cash market and a futures market. The problem is that because the
monopoly blocks any local market signals for wheat, you can't have a cash
market because you have no signals to give you a cash price. And if you
have no cash price, you can't have a true basis. Whereas basis normally
provides invaluable market information, the CWB's basis amounts to nothing
more than the total of your deductions from the sale price of your wheat.
It's kinda like calling a steer a bull. You can call it what you like,
but it's not going to be able to do the job it's supposed to.

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posted February 28, 2000

Lets get out of here

By Craig Docksteader

I never expected to hear it from the National Farmers Union. In a recent
presentation to the Senate Standing Committee on Agriculture and Forestry,
the NFU made the case that agricultural subsidies in Europe (EU) have
not caused the farm income crisis by encouraging over-production.

In their brief, the NFU demonstrated how, according to crop production
statistics, there is no observable relationship between subsidy levels
and production rate increases. While wheat production over the last twenty
years rose significantly in heavily subsidized EU countries, it rose at
comparable rates in relatively unsubsidized countries such as Australia
and Argentina, and to a lesser degree, Canada. Production in the U.S.
over the same period actually fell, in spite of it being the second most-heavily
subsidized country.

The NFUs position represents a significant departure from the approved
Canadian Wheat Board line that foreign subsidies are one of the key factors
pushing up worldwide grain stocks and pushing down prices. CWB CEO Greg
Arason has been preaching this message at every opportunity, complete
with an impressive audio-visual presentation of stats and graphs. These
slides have popped up at other farm meetings across the prairies, as CWB
directors attempt to explain the prairie cash crunch and deflect criticism
from federal policy on grain exports. Now, after checking the numbers
for themselves, the NFU appear to have discovered that EU subsidies may
be no more than a convenient scapegoat for more significant problems right
on our own doorstep.

For farmers who want constructive changes to prairie agriculture rather
than the usual bandaid proposals, the unbalanced focus on international
grain subsidies has at times been irritating. Instead of cleaning up their
own backyard, politicians and bureaucrats have been happy to focus attention
on policies in the EU and the US, content to merely tinker with the problems
created by their own public policy.

So while an inefficient grain transportation and handling system continues
to suck money out of farmers pockets, federal and provincial politicians
appear content with shuffling the same players like some kind of shell
game instead of making substantive change. While industries everywhere
are investing in "vertical integration", where the players claim
more of the value-added chain, the CWB is blocking prairie farmers from
doing the same and spending millions to encourage the export of more raw
product which is sold below the cost of production. While farmers are
looking for options and choices in marketing and risk management, a significant
portion of the prairie grain industry is shackled by archaic federal laws
which insist government can do it better.

Regrettably, however, the NFUs insight into the current farm situation
breaks down before it gets this far. Having rightfully dismissed foreign
subsidies as the primary cause of the farm income crisis, they turn their
guns toward their usual foe, the free market. "The market is failing
farmers..."; "...farmers are making too little because others
are taking too much..."; "There is no shortage of money in the
agri-food system there is merely a maldistribution of money." Every
player in the whole industry gets blamed for causing the income crisis
by price-gouging and leaving the farmer without enough to survive on.

Perhaps without realizing it, the NFU put their finger on the primary
problem in prairie agriculture -- a lack of choice for producers and subsequent
lack of competition between those who want farmers business. Regrettably,
however, their proposed solutions are the very root of the problem. They
advocate more regulation, less privatization, more government control
and less freedom. In a nutshell it amounts to more of everything that
got us to where we are, which results in less of everything that would
get us out of here.

Somehow I dont think we should go down that road again.

Craig Docksteader is Coordinator with the Prairie Centre/Centre for
Prairie Agriculture, Inc. "Where Do We Go From Here" is a feature
service of the Prairie Centre.